HMRC Tax Avoidance Schemes

The Inland Revenue were once the least least frightening of the all the UK tax authorities, lagging behind the VAT people who had inspection powers comparable to the police service.

Now that Inland Revenue and HM Customs and Excise have joined forces to become HMRC the old Inland Revenue departments have started to get or are pending seriously increased powers, added to that powerful computers called Connect which can data mine information from a variety of sources, from the taxpayers information, the internet, credit card/bank information and land registry information which can pick-up perceived irregularities on tax payers returns and disclosures. The balance of power is definitely shifting between the authorities and taxpayers who evade or avoid taxation.

Whilst the accountancy and legal profession generally welcome any effort to support the Governments attempt to tackle evasion there are concerns that HMRC does not have the best record in making accurate tax assessments.

This was highlighted just last week when it sent out about 200,000 incorrect income tax calculations which it put down to a computer error.

The powers which are now in force are demanding without appeal, upfront payment from any individual who participated in any arrangement deemed to be a tax avoidance vehicle (what is a tax avoidance vehicle is determined by HRMC’s judgement) this concerns many accountants.

Another pending power is the ability to recover tax debt directly from a taxpayers bank account. The taxpayer must have a balance of over £5000 in their account before any recovery of the amount over £5000 can take place. HMRC would not need to notify the taxpayer before recovery takes place.

Plus there are now added pressures in the system, as the Government has a public finance deficit which will increase pressure on HMRC to collect tax and recover tax debts.

The regular tax paying member of the public shouldn’t have much to fear about these increases in HRMC’s powers, but the balance of power between the tax payer and HMRC is changing and HMRC will make mistakes which unfortunately accountants will be less able to stop.

An important consultation document doing the rounds at the moment is the new General Anti Abuse Rule (GAAR) which is targeted at artificial and abusive tax avoidance schemes which can not be reasonably regarded as a reasonable course of action having regards to the circumstances.

This is already a gray area, and hopefully these rules will bring a bit of clarity around it, but any legislation needs to come with clear guidance, the better the guidance the more chance the legislation will achieve what it intends to.